Due to popular demand, here it is – a posting dedicated to mutual fund investing for dummies. Thanks to Alfa and Hachiko for this idea. We will definitely wait for the glorious, painful detail of your mutual fund experience! 
There are a lot of definitions of mutual funds out there, but I am most fond of using the analogy of a car pool. Car pools help you get to your destination without having to worry about taking the best route – you let someone you trust take the wheel so you can focus on other things like..uhh..fighting stress!
Mutual funds can help you reach your financial goals without having to worry about the everyday ups and downs of the stock or bond markets. It is also a way of giving newbie investors a taste of what it is like to own stocks and bonds – at a much lower entry level. Imagine, for a P5,000 investment for example, you instantly have a diversified portfolio!
Compared with the mutual fund industry in other markets, though, ours is still very young and certainly a lot of things still need to happen for it to grow.
I began writing about mutual funds when, under the direction of my then-editor Sheila Samonte-Pesayco, our team published the country’s first section in a national newspaper dedicated solely to Personal Finance. That was around 1998 or 1999. A lot has changed since then, and certainly mutual funds are more popular now. In fact, judging from the discussions in this blog, it is fast becoming a hot investment instrument that offers superior earnings compared with the more traditional time deposits.
However, the industry still has a long way to go. Definitely, it is still light years away from successfully drawing the more than P1-trillion deposits of Filipinos languishing away in banks’ time deposits.
Here are some useful links that I’ve collected through the years:
The website of the Investment Company Association of the Philippines has a “Mutual Funds 101” website that you should check out.
How to choose a mutual fund
Discover mutual funds as savings tool
Investing your hard-earned money (Look beyond regular savings accounts)
Retirement plans vs mutual funds
Can I lose everything I’ve invested in mutual funds?
Useful tips:
- Every human being learns how to chew with small bites. In investing, start with the simplest concepts: read the fine print.
- Don’t depend on the agent to explain everything. Ask for the prospectus and take out a magnifying glass if you need to.
- Things to watch out for are sales loads, management fees and charges. These can have different forms and can attack a fund from many angles.
- Fees and charges depress your returns. While your mutual fund investment is not taxed as opposed to the 20 percent withholding tax on time deposits, you pay commission or sales loads sometimes in the form of entry and exit fees anywhere from 0.25 percent to three percent.
- The trick is to spot the high commissions and sales loads on those prospectuses and scrap these funds from your list. Stick with funds that offer the lowest operating expenses and commissions.
Happy investing, everyone!
April 3rd, 2007 at 10:04 pm
Hi Oda, what is an index fund? How about hedge fund?
April 3rd, 2007 at 9:34 pm
Dami mo naman tanong inday
I wish I could send you my compilation of Philequity Audited FS and documents, all of which I’ve read and have found 100% good. For management style etc. you could visit their office at Tektite Towers in Ortigas, ask them on everything until you’re satisfied (or until you turn blue, whichever happens first 
). Business here is still done face-to-face rather than online, but hey I’ve been there, I’ve seen those guys, I trust them, and I’m 100% sure it’s all for real. Take it from me, otherwise drop by at our Stockholder Meeting this June 
April 3rd, 2007 at 9:10 pm
@hachiko.
that’s exactly what i was looking for–the investment styles of each manager(s). heck i cant even find the managers’ profiles lol. they all look like index funds to me.
just look at philequity. can you tell me:
- what exactly is the investment style? i’ve read, re-read and re-read their prospectus and i’m still lost. their “investment philosophy” is vague at best.
this is how i summarize whats on there:
“The fund shall invest its assets in a variety of selected and listed Philippine industries. These stocks should be average to good quality in our estimation. What’s average to good we can’t define. Our analytical techniques we can’t disclose. We can go with any capitalization bec we study them from time to time. Our goal is long term growth but we can also attempt to cash in short term.” LOL.
- who’s managing the money? i need to see names. what are their qualifications? is it a computer program? a monkey throwing darts at a stock board?
i tried looking for the financial statements to get more info and guess what’s on the website–2003 and barely readable LOL.
i think i’m already sounding like a broken record but these are basic questions that really should be available after a few mouse-clicks.
kinda scary, dont you think?
April 3rd, 2007 at 7:58 am
Hi Oda, actually almost all equity funds are actively-managed so each has their own investing style (SALEF and Phileq standing out so far), but performance is still measured vs the PSE index, and fund managers must still abide by the “prudent man rule”, diversification, etc. Yes, indeed, long way to go in terms of sophistication, and my 8 yrs in Phileq already seems to be a record!
For UITF, BDO has monthly performance review of its funds, which I find helpful:
http://www.bdo.com.ph/uitf_pmmf.html
April 3rd, 2007 at 12:03 am
@hachiko:
tnx for the info.
so what differentiates the phil equity fund (and any other phil mutual fund) from each other and from the pse index?
it appears to me now then that all phil equity funds are index funds.
and if all the funds are invested and weighted as the pse index is, then what’s the point of active management?
yes, MER is the management expense ratio, which simplistically is management fee + operating expenses. i can only find base management fees, not the total MER.
as for the scam, never say never : P
finally, i can objectively and honestly say phil mutual funds are a looong way off (by way of size, maturity of industry, quality and quantity of fund investments, quality/experience/pedigree of fund managers, regulatory standards) from north american standards.
sa prospectus pa nga lang eh, the fundamental fund document…no further comment lol…